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VMware CEO Pursues $700 Million In Dell Synergies

Michael Dell

Pat Gelsinger

VMware had no comment about the rumored Dell-VMware reverse merger possibilities during an earnings call yesterday. However, the virtualization company praised the existing Dell relationship multiple times, saying the existing partnership can likely deliver about $700 million in potential Dell-related synergies for VMware’s fiscal year 2019.

Dell already owns about 80 percent of VMware. Michael Dell and his advisors have been exploring a potential reverse merger scenario where VMware would buy Dell, essentially returning the hardware giant to public markets. Rumors about the reverse merger chatter surfaced in February, and heated up again yesterday.

VMware CEO Pat Gelsinger declined to comment about the chatter during an earnings call yesterday, pointing investors instead to a company statement issued in February.

VMware Pursues $700 Million In Dell Synergies

Zane Rowe

Still, the story didn’t end there. Gelsinger and VMware CFO Zane Rowe found ample time to praise the existing Dell relationship on the earnings call. Among the sound bytes and anecdotes:

  • “While we are experiencing broad momentum from our Dell partnership, our HCI VxRail offering showed particular strength as we finished a very strong year in this area,” Gelsinger noted.
  • “We’re also pleased with the collective business we’ve built with Dell Technologies, and ended the year with approximately $400 million in synergies,” Zane Rowe added.
  • After a Wall Street analyst asked Rowe for more information about the Dell-VMware synergies, Rowe said the $400 million was an increase from VMware prior guide of $250 million — which involves an annual bookings synergy capture for FY 2018. “Now, it puts us on a great trajectory,” he added. “We’ve talked about the success we’ve had on multiple fronts with our synergy capture, and believe we’re very well-positioned for FY 2019.”
  • Gelsinger, meanwhile, pointed to Dell partnership momentum involving vSAN and VxRail — and he predicted even more Dell-VMware synergies in the months ahead. “We believe that we’ll achieve $700 million in annualized synergies in this fiscal year that’s just getting under way. So overall, the momentum is good, and as I’ve indicated before, we’re ahead of schedule toward our synergy capture objectives,” he said.

VMware Results, Reverse Merger Rumor & Potential Timing

VMware’s core business continues to accelerate. The company has successfully expanded from its legacy server virtualization business into network and storage virtualization. Revenues were $2.31 billion for fiscal Q4 2018, up a strong 13.8 percent compared to fiscal Q4 2017 — and about $50 million above Wall Street’s expectations, according to SeekingAlpha.

Meanwhile, Michael Dell and his advisors apparently want to reach a decision on the potential reverse merger within the next several weeks, with multiple sources pointing to Dell EMC World 2018 (April 30 – May 3) as a potential announcement target.

Multiple reports reinforce that there’s a chance Dell may decide not to pursue the reverse merger.

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